Current problems of taxation of joint stock company and shareholder (2023)

Case 1: Participation deduction

Case 1A: Partnership with participation

X AG, domiciled in Switzerland, holds a 25% interest in the foreign corporation Y. The remaining 75% interest in Y is held by a foreign investor. X AG and the foreign investor intend to contribute the participation Y to a foreign partnership Z, which is treated transparently for tax purposes in the country concerned and does not have a business operation or permanent establishment. The contribution of participation Y to partnership Z is intended to facilitate the admission of further investors and the injection of new capital.

Question

In the case of X AG, is the participation deduction applicable to participation Y held via partnership Z?

Case 1B: Participation deduction in the case of intercantonal tax segregation

X AG has its registered office in the Canton of Zurich and reports a taxable profit of CHF 56,000,000. This includes, among other things, net investment income (after pro rata administrative costs and debt interest) in the amount of CHF 74,000,000 and a gain on the sale of an investment property in the Canton of Neuchâtel of CHF 2,500,000.

variant:

The profit of X AG amounts to CHF 300,000, the net investment income amounts to CHF 250,000 and the profit from the sale of the investment property in the canton of Neuchâtel amounts to CHF 90,000.

Question

What profit can be taxed by which canton, taking these two facts into account?

Case 1C: Foreign permanent establishment and conversion into company

X AG is domiciled in Switzerland and has a permanent establishment in Germany. The total profit of X AG in the year _1 amounts to CHF 1,000,000. The profit of the German permanent establishment is determined on an object basis. In the year _1, the permanent establishment shows a loss of CHF 100,000. This is taken over within the scope of Art. 52 para. 3 DBG and can be offset against future profits of the German permanent establishment. Also from previous years, X AG still shows losses of the German permanent establishment totaling CHF 200,000, which have been provisionally taken over by Switzerland within the scope of Art. 52 para. 3 DBG.

As part of a reorganization, X AG decides to convert its German operating facility into a separate company. The transferred surplus of assets amounts to CHF 350,000.

Question

What needs to be considered from a tax perspective with regard to this conversion of the German permanent establishment into a separate company?

Case 1D: Moving in from abroad

X AG has its registered office abroad and holds various participations. X AG moves its statutory and tax domicile to Switzerland.

Question

What has to be considered for the participation deduction for the participations of X AG?

Case 1E: Moving abroad

X AG has its registered office in Switzerland and holds various participations. X AG moves its statutory and tax domicile abroad.

Question

What has to be considered for the participation deduction for the participations of X AG?

Case 1F: OECD GloBE Model Rules (Pillar 2)

X AG is domiciled in Switzerland and holds various investments. X AG is the top holding company of Group X with sales in excess of EUR 750 million and is subject to the OECD Model GloBE Rules (Pillar 2).

Question

What should be considered for the participation deduction for the participations under the OECD Model Rules?

Case 2: Replacement procurement

Case 2A: Replacement acquisition of business fixed assets

Bau AG is active in civil engineering and is planning to replace the existing works yard with a new building at a new location. The balance sheet of Bau AG at the end of _1 is as follows:

In this context, Bau AG would like to sell not only the Werkhof but also the apartment building and the building plot (located in a residential area). The following key data are known:

Questions

1. What are the basics for a replacement procurement to be possible at all?
2. Can Bau AG use the realized hidden reserves on the work yard, the apartment building and the building land as so-called replacement purchases?
3. Variant I: Bau AG sells only the Werkhof for CHF 3,300,000 and reinvests in a new Werkhof. For this new Werkhof, it pays CHF 3,000,000. Does anything change in the tax conclusion?
4. Variant II: Bau AG sells the patent for CHF 500,000. Can Bau AG claim this profit of CHF 350,000 as a replacement purchase (at the work yard or in relation to new purchases of machines, trucks)?
5. Variant III: Bau AG sells the entire Werkhof at a price of CHF 3,300,000 and would like to transfer the realized hidden reserves tax-neutrally only to the completely renewed machinery. Is this possible due to the legal basis?
6. Variant IV: Bau AG has sold the old depot, but negotiated a flexible rental agreement with the buyer, according to which it can still use this depot for its own needs until further notice. The search for a suitable site for the new depot is proving to be time-consuming. Finally, this new depot can only be occupied in the year _3. How should this situation be assessed from a tax point of view?
7. Can the hidden reserves be transferred to the new property even if the old Werkhof cannot be sold until two years after the new one has been occupied?

Case 2B: Replacement procurement for real estate companies

Bau-Immo AG is a pure real estate company and is part of the Bau Group. In this context, it owns all Group properties and rents them out to the productive companies. One of these productive companies would like to expand its activities. For this purpose, it asks Bau-Immo AG to find a replacement property on which a larger new building can be constructed.  

Question

Can Bau-Immo AG transfer the profit resulting from the sale of this property to the new property to be acquired under the title "replacement acquisition"?

Case 2C: Replacement of investments

Zurigo AG acquired 40% of Torro AG for CHF 3,500,000 on December 15, _1. At the end of _3, the income tax value and also the cost of goods sold remain unchanged at CHF 3,500,000. As part of a reorganization, Zurigo AG sells this investment in March _4 for CHF 4,200,000 to an independent third party and acquires 100% of Capri AG in the same year for a price of CHF 5,000,000.

Variant I

The acquisition of Capri AG will not take place until _7.

variant II

The income tax value of Torro AG is still CHF 3'500'000, but the prime costs have increased from _1 to _4 by CHF 500'000 to CHF 4'000'000. However, the proceeds from the sale still amount to CHF 4,200,000.

Variant III

The purchase price of Capri AG is "only" CHF 2,500,000 instead of CHF 5,000,000, but the profit tax value and the prime costs are still CHF 3,500,000 as in the original variant.

Variant IV

Instead of a 100% shareholding, Zurigo AG acquires only 8% of Capri AG for CHF 5'000'000 as well.

Questions

1. Are there any differences between the replacement of investments and the replacement of fixed assets required for operations?
2. What are the tax consequences from a direct tax perspective for Zurigo AG from this sale of Torro AG with subsequent reinvestment in Capri AG?
3. Variant I: Does anything change in the tax conclusions if the "replacement interest" is not acquired until year _7?
4. Variant II: Do the tax conclusions change if the cost price of the investment sold is higher than the profit tax value?
5. Variant III: What tax conclusions should be drawn if the replacement participation has a lower profit tax value than the participation sold?
6. Variant IV: What tax conclusions do you draw from a direct tax perspective if no shareholding is acquired in the tax sense?
7. In the case of stamp duty, is there also an exemption from the same in the case of availing the replacement?
8. Does it even make sense to claim the replacement purchase on the proceeds of the sale of an investment?

Case 3: Indirect partial liquidation

Case 3A: Judgment of the BGer 2C_135/2021 of 2.3.2022

After the death of her husband on December 30, 2016, A takes over all shares in B AG as his sole heir. According to the entry in the commercial register, the purpose of B AG is the planning, construction, management of and trading in real estate. B AG may also make investments in tangible assets in art objects and participate in other companies. In the last years before the death of the sole shareholder, the company focused entirely on art trading after the sole shareholder started to reduce the construction and planning activities as of 2012.

By contract dated January 15, 2017, A sells the shares in B AG to C AG at a price of CHF 610,000.

The purchase agreement relates to the financial statements as of December 31, 2015 with distributable retained earnings of CHF 687,123. In the financial statements 2016, a loss results due to impairments on the art objects.

On January 25, 2017, the auditors of B AG receive a valuation report on the works of art. Subsequently, on 16 February 2017, A and B AG agree on the acquisition of the works of art (107 paintings and 2 busts) by A for a purchase price of CHF 110,000.

For the purpose of repaying this purchase price debt and a loan debt of CHF 500,000 owed to B AG, which A inherited from her deceased spouse, on February 16, 2017 A assigns to B AG the outstanding claim against the purchasing company C AG of CHF 610,000 from the sale of shares.

On July 7, 2017, B AG is merged into C AG.

Question

How should this situation be assessed for tax purposes for A?

Case 3B: Decision of the StRG ZH 1 DB.2020.106 / 1 ST.2020.123 of 2.11.2021

A is the sole shareholder of D AG and, as part of a succession solution, sells all 150 registered shares of D AG to F AG by way of a purchase agreement dated November 9, 2012. F AG is owned by his three sons H, I and J, who each hold a third party interest in it. A also has a daughter who does not hold an interest in F AG.

To the extent of the nominal share capital, part of the purchase price is paid immediately by F AG. For the remainder of the purchase price (i.e. approximately 97% of the purchase price), A grants an interest-free loan to F AG. According to the contractual agreement dated November 9, 2012, this loan is to be amortized annually by the amount of CHF 100,000. The obligor grants the loan to F without interest. Apart from the deposit of the shares of D AG in a safe deposit box of a bank, F AG does not provide any collateral for the loan granted to it A as lender.

Prior to the sale, A submits a ruling request to the cantonal tax office regarding the planned procedure, which is, however, answered negatively.

After D AG paid a dividend in 2012 and 2013 of approx.

CHF 100,000 to F AG, the dividend policy of D AG will be adjusted and the amount distributed will be increased annually to approximately CHF 120,000 and used to amortize the loan.

A files the 2012 tax return together with his wife B. In 2018, the Cantonal Tax Office issues the assessment ruling and the assessment decision for the year 2012, in which the Cantonal Tax Office qualifies a capital gain in the amount of CHF 1,025,844.00 from the sale of 150 shares of D to F AG as taxable and denies a corresponding tax-free capital gain.

Question

How should this situation be assessed for tax purposes for A?

Case 4: Costs for business succession

Facts

Hold AG is owned by four shareholders. Graphically, this can be represented as follows:

As part of the reorganization, a succession solution for Max is to be found. Kurt is to receive a majority shareholding in Ziel AG and Ueli a majority shareholding in Hold AG.

The procedure is as follows:

• Kurt founds a new company, Kauf AG, and contributes his shares in Ziel AG.
• Hans and Ueli found a new company, Zipag AG.
• By means of a purchase and shareholder agreement between Hans, Ueli and Kauf AG, it was agreed that Zipag AG can acquire 141 shares in Hold AG from Privat AG and all shares from Max.
• Furthermore, Hans undertakes to sell 72 shares in Hold AG to Kauf AG.
• Ueli in turn assured to sell one share of Zipag AG to Kauf AG.

Finally, Kurt received a majority shareholding in Ziel AG and Ueli received a majority shareholding in Hold AG. Max, in turn, had no interest in either Ziel AG or Hold AG after these transactions and only held the interest in Privat AG.

After the various steps, the organization chart is as follows:

During the tax assessment of Ziel AG, the tax office determined that the entire reorganization costs of this structural adjustment in the amount of CHF 50,000 were recorded in the expenses of Ziel AG. These costs include, among other things, the financing of these transactions, which were incurred by Kauf AG.

Questions

1. What considerations should be made with respect to imputed income?
2. What conclusions did the Administrative Appeals Commission draw in this particular case and what were its considerations?
3. Further considerations on this topic